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Fred Joseph, Who Led Drexel in Its Heyday, Dies at 72

Frederick H. Joseph, an investment banker who helped to create the junk bond business as chief executive of Drexel Burnham Lambert, died on Friday in Manhattan. He was 72 and had homes in Manhattan and Andover, Mass.

The cause was complications of multiple myeloma, said his wife, Linn Anderson.

Mr. Joseph, who was known as Fred, rose from a hardscrabble youth in Boston to the heights of Wall Street, where as chief executive of Drexel in the heady 1980s he helped transform the firm from an also-ran into a juggernaut. Along with his star employee, Michael Milken, Mr. Joseph created a market for high-risk, high-yield bonds that, until then, many investors had found too risky.

Drexel’s pitch proved irresistible to a group of brash entrepreneurs and corporate raiders who used the proceeds from junk bond sales to finance a frenzy of hostile takeovers.

Mr. Joseph remained the public face of Drexel as the firm collapsed amid an insider-trading scandal that sent Mr. Milken to jail. In 2001, he started a new investment firm, eventually renamed Morgan Joseph & Company, which focused on middle-market companies.

John F. Sorte, the chief executive of Morgan Joseph, described Mr. Joseph as a “rock star in investment banking” for popularizing financial instruments that gave small companies and entrepreneurs access to the capital markets.

Mr. Joseph was the son of a Boston cab driver and a dental hygienist. He graduated in 1959 from Harvard, where he won several boxing medals. He served on a minesweeper in the United States Navy and then attended Harvard Business School, earning an M.B.A. in 1963.

Mr. Joseph began his banking career that year as the first recruit in a new corporate finance department at E. F. Hutton; his mentor, John S. R. Shad, later became chairman of the Securities and Exchange Commission. It was there that Mr. Joseph learned to how to gain an edge on stronger competitors by working with small but growing companies that were led by canny entrepreneurs.

Photo

Frederick H. Joseph in 1986.Credit
John Sotomayor/The New York Times

After Mr. Shad lost a battle to run the firm, Mr. Joseph moved to Shearson, Hammill & Company, where he quickly rose to chief operating officer. When Shearson was purchased, he moved again, this time to Drexel, to co-manage the company’s corporate finance department.

While Mr. Milken was considered the firm’s genius, Mr. Joseph was the boyishly handsome face of the firm before investors and the media. He also realized that since most blue-chip companies dealt exclusively with old-line investment firms, Drexel could have an impact by focusing on companies with less-than-stellar credit ratings.

In 1977, the company began offering the public bonds that had poor credit ratings from the start.

“Our view is that there are 18,000 companies in this country with assets of $25 million or more and only 765 of them have investment-grade ratings,” Mr. Joseph said in a 1985 interview with The New York Times.

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“During the 1980s, we felt like we were on a mission,” said Mr. Sorte, who also worked with Mr. Joseph at Drexel. “It was an extremely exciting place to work.”

Mr. Joseph said he was surprised by the improprieties at Drexel that were uncovered during a federal investigation and accepted blame for failing to supervise Mr. Milken.

In 1988, he negotiated a settlement with the federal government in which Drexel agreed to plead guilty to six felony counts and pay $650 million, which infuriated many Drexel employees.

He later testified against Mr. Milken.

Mr. Joseph denied involvement in the insider-trading schemes and told Fortune he was guilty only of “surprising naïveté.” From then on, he was banned from becoming chief executive or chairman of a securities firm.

In addition to his wife, Mr. Joseph is survived by his mother, Sara Joseph of Boston; a brother, Stephen Joseph of Chester, Conn.; a sister, Michelle Joseph Morris of Williamsburg, Mass; four daughters, Lisa Schultz of Summit, N.J.; Melinda Burke of Brooklyn; Amy Humphreys, also of Summit; and Tommi Beth McHugh of Denver; a son, Mark Joseph of Gloucester, Mass.; and a stepson, Andrew Prezkop of Washington.

A version of this article appears in print on , on Page A33 of the New York edition with the headline: Fred Joseph Dies at 72; Led Drexel in Its Heyday. Order Reprints|Today's Paper|Subscribe